SK Hynix: The indispensable memory giant in AI era

SK Hynix has become one of the most closely watched companies this year. Although the market has recently grown cautious about the outlook for Korean equities and memory companies, we believe SK Hynix's growth momentum remains solid and should continue to drive its share price higher going forward.

SK Hynix: Products and technology underpin SK Hynix's leadership

SK Hynix's product range spans multiple memory categories, offering investors seeking exposure to the memory cycle a pure-play way to gain that exposure.

Table 1: SK Hynix's Key Products

Product	Key Applications	AI Relevance
DDR5	PCs, servers, data centers	Supports the memory performance required for AI servers and high-performance computing; a core component of AI server memory.
LPDDR5	Smartphones, laptops, automotive electronics	Low-power mobile memory for on-device AI.
LPDDR5X	High-end smartphones, AI server modules (e.g. SOCAMM2), automotive electronics	Mass-produced in 192GB SOCAMM2 modules, extending LPDDR5X into AI server memory module applications.
HBM4	GPUs, high-performance AI chips	Core memory for AI model training and inference, capable of processing more data per second.
Source: Company website, iFAST Financial Compilations.

1.      The Extension of AI Data Centers — End-Device Applications

SK Hynix's HBM series is mainly used in AI model training and inference, forming the core of high-performance computing in data centers. While the market currently focuses heavily on SK Hynix's HBM production and its data center applications, in fact its entire memory product matrix is an indispensable part of the AI ecosystem. Take smart devices as an example: consumer electronics makers are accelerating the integration of AI functions into end devices, and conventional memory performance may no longer be able to meet the demands of this technological progress. As a result, the growing adoption of on-device AI applications will bring a new wave of demand growth to the memory industry.

Beyond DRAM and HBM, SK Hynix's NAND business is also benefiting from the AI build-out. AI data centers require substantial enterprise SSD (eSSD) capacity to store the vast datasets used for model training and to save model checkpoints during long training runs, and eSSD pricing has been rising alongside DRAM. This positions SK Hynix's NAND as a second beneficiary of the AI memory cycle, broadening the company's exposure beyond DRAM and HBM alone.

This shows that SK Hynix's AI strategy extends well beyond HBM. Its diversified product matrix has allowed the company to capture opportunities across the entire AI value chain, and also suggests that its penetration into the AI industry may be far greater than the market generally expects. This is precisely why, although the market currently focuses mainly on how AI data center infrastructure build-out drives memory demand — and worries that a slowdown in capital spending could push memory prices down — the extension of AI technology into end applications will create new demand for other memory categories such as LPDDR. This demand is not a substitute for HBM, but rather the start of a new wave of rising memory demand.

2.      A Solid Technology Moat

As early as 2013, AMD and SK Hynix jointly developed the world's first HBM to overcome the bandwidth limitations of conventional memory, establishing SK Hynix's leadership in HBM technology. Years of continuous technological deepening and improvement have already built a technology barrier for SK Hynix that other memory companies find difficult to replicate or surpass in the short term.

For example, SK Hynix has applied its self-developed MR-MUF technology (Mass Reflow-Molded Underfill) to HBM production since 2019, making it the only memory maker in the industry using this technology at the time. Beyond solving heat dissipation and warpage issues, this technology has significantly improved SK Hynix's production efficiency and highlighted the company's technological edge in advanced packaging. It has not only widened the technology gap between SK Hynix and other producers, but has also helped improve product performance and quality, allowing the company to secure orders from major, high-quality customers early on.

SK Hynix | Capex Rising Sharply, Financial Position Remains Solid

Given the rapid rise in market demand for memory, SK Hynix stated clearly in its first-quarter guidance this year that it would significantly step up capital expenditure(“capex”) to increase capacity and improve product performance, having already announced several investment plans beforehand.

·       The “Republic of Korea Great Leap Forward” Three Super Projects: SK Hynix will invest KRW1,100 trillion over the next decade to build memory production headquarters and AI memory support bases in Cheongju, Yongin, and southwestern area, including the P&T7 advanced packaging facility and the M17 NAND production facility.

·       It also plans to invest USD3.87 billion to build its first 2.5D packaging mass-production line in Indiana, USA.

Chart 1: SK Hynix's Capex as a Ratio of Operating Cash Flow and Revenue

Although investors have recently worried that a slowdown in capital spending by hyperscalers could reduce memory demand — raising market concerns over whether SK Hynix can continue to fund its capex plans — in fact, SK Hynix's financial position remains very solid.

Supported by strong revenue growth, capex as a proportion of revenue fell from 28% in 2025 to 15% in 1Q26, showing that revenue growth is more than sufficient to support rising capex. In terms of cash flow, operating cash flow was 3.4 times of the capex, indicating that SK Hynix is well able to generate sufficient cash from its own operations to fund capital investment. Even if the scale of investment expands further, the company has considerable financial capacity to absorb it.

Chart 2: Major Expense Items as a Proportion of SK Hynix's Revenue

SK Hynix's strong cash-generating ability can be attributed to the high-margin nature of its business model. As we mentioned in the previous article, under the effect of operating leverage, SK Hynix can convert a larger share of incremental revenue into profit. As Chart 2 shows, most of SK Hynix's operating expenses are relatively fixed in nature, including R&D, depreciation and amortization, and administrative expenses. As a result, once SK Hynix raises capacity and shipment volumes, these fixed costs are diluted as a proportion of revenue. Combined with SK Hynix's considerable pricing power, operating margins can improve further as unit costs fall and prices rise. The significantly improved profitability also provides ample funding for the company's investment plans, while strengthening SK Hynix's financial resilience, enabling it to maintain steady operations even amid fluctuations in memory prices and raw material costs.

Related article: South Korea’s Memory Duopoly: How Samsung and SK Hynix are reshaping the Korean stock market?

SK Hynix: 2Q26 results strengthen the signal

SK Hynix's 2Q26 results provide further strengthen the signal of potential rally.

1.      Revenue

SK Hynix's 2Q26 revenue surged to KRW 79.3 trillion, representing a y-o-y growth rate of 256.8%. Although the revenue figure is slightly below market consensus, this notable growth rate accelerated further from 1Q26's 198.1%. In terms of quarter-on-quarter growth, given a high base effect, the q-o-q growth rate slowed from 60.2% in 1Q26 to 50.9%; however, as the absolute amount of revenue is still climbing, we do not consider this a sign of slowing momentum.

2.      Product categories

Amid this, DRAM shipment met the expectations set as of 1Q26, successfully achieving high-single-digit percentage q-o-q growth. ASP also rose by 30% in 2Q26, showing that downstream demand remains as strong as expected. We also see an underestimated segment, NAND, performing well this time, with its ASP increasing by 50% q-o-q, proving a market shift as data centers substitute eSSD for HDD due to a severe HDD supply shortage, alongside AI's own direct eSSD storage needs. These are additive demand drivers for memory — not a substitute for HBM or DRAM — and represent a new growth engine for SK Hynix.

3.      Profit margin

Operating margin improved to 76.3%, a 4.8 percentage-point increase from the previous quarter. This is business-driven margin expansion, consistent with the operating leverage discussed above. Meanwhile, driven by one-off and non-operating gains, net profit margin exceeded 100% in 2Q26. Putting this together, the performance in operating margin is strong enough to support our view of SK Hynix's profitability and its ability to fund a more aggressive expansion plan.

Chart 3: SK Hynix's Revenue and Operating Margin

4.      CAPEX guidance

Based on the investment plans that announced before, SK Hynix estimates that 2026 capex will reach KRW 40 trillion, an amount that accounts for only 30.3% of 1H26 revenue, further evidence company’s ability to support its aggressive investment plans.

SK Hynix: Structural cycle provides strong support for a long-term valuation re-rating

After a recent pullback, SK Hynix's share price had fallen 54.1% from this year's high as of 30 July. The sustained decline has understandably raised market concerns that SK Hynix's upward share price cycle may be coming to an end. However, we continue to believe that the current memory cycle is structural in nature, and that the recent correction is largely driven by market factors rather than any weakening in SK Hynix's fundamentals.

1.      Single-Stock Leverage Fuels Share Price Volatility Risk

In our outlook for the Korean stock market in the second half of the year, we noted that Korea's high degree of leverage tends to amplify share price volatility and adds risk for investors. Under high leverage environment, once unfavorable news hits the market, a falling share price can expose both the product issuer and investors who bought shares or related products on margin to forced-liquidation risk, amplifying volatility in SK Hynix's share price. Weak performance can then lead other investors to worry that the rally in memory stocks has come to an end, further souring market sentiment. We therefore believe that leverage has contributed to SK Hynix's recent weak performance to some extent.

2.      Long Term Agreements Lock in Future Demand

SK Hynix's CEO recently said the memory shortage is expected to worsen in 2027 and persist until at least 2030. Although SK Hynix is actively expanding capacity, the relevant facilities will take several years to come online, so current investment plans cannot immediately translate into additional supply. In addition, the memory shortage has extended upstream — because HBM consumes materials at a much higher rate than conventional products, advanced packaging capacity and raw materials have become tighter, further intensifying the shortage.

This is a critical stage for technology companies building out infrastructure and competing for computing power. To prepare for a shortage that may worsen further, many large technology companies have already signed long-term agreements (LTAs) with memory producers. In its Q2 results, SK Hynix disclosed that the company has reached LTAs with around 10 key customers, using a deposit mechanism to ensure contract fulfillment. While LTAs may not necessarily lock in fixed prices, this process allows SK Hynix to secure customer purchase commitments early, helping ensure that capacity is fully utilized while also reinforcing its market position within the memory supply chain.

3.      Slowing ASP Growth Does Not Indicate Weakening Demand

Compared with Q1, the ASP increase for both DRAM and NAND slowed noticeably in Q2, raising market concerns that the memory cycle may be ending and that SK Hynix's revenue growth momentum could be losing steam.

Chart 4: DRAM Price Trend

The shortage scare in the second half of last year fueled the surge in memory prices, and although prices pulled back slightly this April, they remain well above levels seen before the memory cycle began. Additionally, given the high base set by last quarter's sharp rise in memory prices, the moderation in q-o-q ASP growth is relatively normal. Separately, DRAM prices rebounded in May, indicating that despite the slowdown in ASP growth, strong downstream demand has kept memory prices elevated. As such, slower ASP growth does not necessarily equate directly to weakening demand.

Furthermore, our investment thesis on the memory cycle is built on the supply-demand imbalance and the pull from broad-based AI application demand for memory — not simply on rising prices. We believe the core of this memory supply-demand imbalance lies in the current intense demand from technology companies for AI infrastructure build-out; meanwhile, capacity expansion takes considerable time, and AI's higher performance requirements for memory further raise the bar for materials and process technology, making it difficult for supply to keep up in the near term. As AI model iteration accelerates and applications continue to expand, memory demand is expected to remain elevated, further intensifying the shortage, which will also provide a floor of support for memory prices.

4.      Risks Present, but Valuation Case Remains Intact

As of 30 July 2026, SK Hynix's 12-month forward P/E (calculated on a fixed one-year fiscal-year basis) stood at 4 x, well below its average of 6.1x. This suggests that following the recent sell-off, the current stock price may not fully reflect SK Hynix's growth potential given its fundamental remains intact, which could imply room for further valuation upside.

Although SK Hynix's growth momentum remains fairly solid, investors should still be mindful of certain potential risks.

Chart 5: 12-Month Forward P/E of SK Hynix

·       AI capex slowdown risk: if construction demand from hyperscalers slows — that is, if capital spending fails to keep pace with build-out — HBM demand growth could temporarily ease. However, since SK Hynix has already locked in orders in advance, the impact should be relatively limited.

·       Geopolitical and export control risk: as a company based in South Korea, SK Hynix could potentially face import restrictions from the United States, and its political risk is higher than that of its main competitor, Micron Technology. Given that SK Hynix is considering building a plant in the US, diversifying production capacity could help reduce this risk.

·       Technology competition risk: The leadership position of SK Hynix is not uncontested, as Samsung and Micron have been racing to close the gap, both rivals are pursuing the same structural opportunity SK Hynix is capitalizing on. Hence, SK Hynix’s ability to defend HBM market share over the next few years remaining an important variable to watch.

·       DRAM price competition risk: As DRAM has a lower technology barrier than HBM, competition in this segment is more intense. Although CXMT's capacity expansion is unlikely to flood the market with large volumes of low-cost DRAM in the near term, the risk of price competition remains over the longer term. That said, SK Hynix's leading position in HBM is difficult for other DRAM producers to surpass, and the competitive landscape there is relatively entrenched, so the impact on SK Hynix's core competitiveness should be limited.

SK Hynix's current forward P/E is already significantly below its historical average, reflecting a relatively high margin of safety in its valuation. Combined with the moat provided by its technology leadership and customer relationships, this should be sufficient to support the company's resilience in the face of market shocks. We believe a reasonable P/E for SK Hynix's ADR is approximately 6x, a modest premium to the current P/E of its Korean-listed shares, reflecting the higher liquidity of US equities and the limited scope for ADR conversion. This implies a year-end 2028 price target of USD206, representing potential upside of 37.9% as of 30 July 2026.

Table 2: Valuation and EPS Forecast of SK Hynix (ADR)

	2025A	2026E	2027E	2028E
Earnings per ADR (USD)	4.4	19.7	31.6	34.3
Earnings growth rate	128.7%	349.7%	60.4%	8.5%
P/E ratio	34.1	7.6	4.7	4.4
Target Price at the end of 2028 (Based on 6x Forward P/E)				206
Potential upside				37.9%
Source: Bloomberg L.P., iFAST Compilations. Data as of 30 July 2026.

In addition, investors may also diversify their exposure to Asian AI hardware risk through investment products that primarily hold Asian semiconductor companies.

Table 3: Related Investment Products

Market	Stock	ETF
Asia Semiconductor	SK Hynix (NASDAQ: SKHY)	Global X Asia Semiconductor (HKEX: 3119)